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Serie 26
Principle
| Question | Answer |
|---|---|
| Person | a person can be a natural person or company, government, politcal subdivision, agency or instrumentality of a government |
| broker | any person engaged in the process of effecting transactions in securities for the accounts of others |
| dealer | any person engaged in the process of effecting transactions in securities for their own account |
| agency capacity | buying securities for others |
| principal capacity | buying securities for own acct |
| security | investment instrument that signifies ownership in a corporation. a creditor relationship toward gov or corp entity, (bonds, notes, or other debt instruments) or acess to advanced terms of a security (warrants, rights, options) |
| t or f equity indexed annuity, and fixed index annuities are not considered securities | true |
| associated person | any partner, officer, director, or branch mgr of a b/d or any person occupying a similar status of performing similar functions any ppl controlled by b/d except ministerial ppl. |
| does FINRA maintain any jurisdiction over non associated ppl? | yes |
| SRO | Self Reglatory Organization - any national securities exchange, regis securities association (FINRA), or reg clring agency engaged in regulation of securities |
| t or f unless a dealer deals exclusively in exempt securities, (gov, muni's, bonds) all b/d's should be registered with FINRA | true |
| what is needed for a firm to become part of FINRA? | application (form BD), register with SEC, Form BD must be accompanied with new mbr assessment rpt, new mbr questionare, U4, fingerprint cards on all associated ppl, and a check for fees |
| what do charges to FINRA include? | basic mbrship fee, annual assessment based on gross income generated from activity in OTC and NYSE and a fee for each registered person and branch office |
| Is FINRA membership available to banks? | no, but is to b/d subsidiaries of a bank holding co. |
| What is PMI | Premembership Interview into FINRA. Tom get ready for this interview the firm sends the district office a basic description of the ype of business the firm intends to do, who the offic & direct R & finan info. Intvw must take place w/in 12 mo if app |
| what is the purpose of remembership interview into fINRA? | to make sure the firm has the resources, both financially and in terms of practical knowledge to operate without posing a ovious risk to the investing public. |
| how long does the firm wait to find out the result of the PMI from FINRA | within 30 days after interview if app is granted, denied or granted subject to restrictions on its business activities and reasons for determination |
| executive representative | this person votes and acts for the member office on FINRA matters. This person must be a mbr of senior mgmt and registered as a principal. The rirm may change its rep or may apporint a sub by giving FINRA written notice |
| If a firm holds customer funds or securities what must it provide and how often to the customer in writing? | The FINRA Public Disclosure Program Hotline Number, The FINRA website address, a statement as the availability of an investor brochure that includes info about kpublic disclosure program |
| FINRA's CRD | Central Registration Depository - maintains info on all persons registered with FINRA INCL customer complaints. |
| Statutory discqualification | Disciplinary sanctions by SEC, SRO, foreign finan reg or Foreign SRO can be cause for statutory disqualification (sd) from FINRA mbrship |
| What are reasons a firm would be denied mbrship from FINRA | has been expelled or suspended by another SRO or Foreign SRO, subject to SEC neg order, or has willfully filed a false or misleading app or has fialed to diclose material facts |
| what are reasons an indiv will be denied membership to FINRA? | MADE WILLFUL MISTAMENTS IN AN mbr APP or ASSOC PERSON, subject to fel convic, or misdemr with secur-pst 10 yr, under crt injunc stoppin them from being adviser, undrwrt, b/d or other capacity. suspended from SRO, Under SEC order, is cause of B/d expulsion |
| Is SD absolute? | No finra has an eligibility proceeding that can under certain conditions permit a person currently associated with a member but subject to SD to be permitted associated with member. |
| What must be done to file and eligibility proceeding if indiv or mbr has SD? | filing on form MC-400 for indiv or MC 400A for mbr; fee of $1500, decision made by dpt of mbr regulatio, review and approval must be given by National adjudicatory council (NAC) |
| wHAT ARE THE 3 TIRES THAT FINRA CLASSIFIES INDIVIDUALS AND MBRS WITH CORRESPONDING EXAMINATION REQUIRMENTS? | Tier I - most serios offenders (annual exam, Tier II - for disqualifying misconduct of less serious nature (routine mbr exam), Tier III - Indiv and mbrs who were permitted to associate or remain mbr w/out special supervision. (no special exam) |
| Is there a cost for extra supervison of the different tiers levels? | yes. Tier I - if firms employs they pay an annual fee of $1500 to FINRA for Tier II - $1000 and none for tier III. |
| What if you want to hire a person as a clerical person but is an SD indiv? | The position may be offered instead of sales job, but a form MC 400 must be filed requesting permision to employ from FINRA. |
| what must a principal do before sending appl to FINRA | verify the applicant's employ for past 3 yrs and attest to the character and reputation of the applicant. |
| What information is needed on the U$ | name, address, aliases, 5 yr residency history, 10 yr employmnt history, info on any charges, arrests, convictions or misdemeanors |
| t or f info on marital status and educational background are not required on Form U-4 | true |
| how long do you have to file an ammendment of the US of material changes? | 30 days after member becomes aware of the change. Unles it has to do with possible SD then 10 bd. Or If person is suspended of fined over $2500, must notify in 10 bd |
| what must a firm certify they have that is has invvestigated before submitting a an application to enroll a perons with FINRA | person's business rep, character, education, qualifications, and experience and that the candidate's creds are in order |
| what happens if the firms does not check the pers background b4 sending U4 to FINRA? | the person may be barred and the firm may be liable as well. |
| what happends if a firm fails to register its personell who perform any of the functions that reequire licensing/ | THIS MAY LEAD TO DISCIPLINARY ACTION BY finra. |
| is a registration for an indiv transferable from one firm to another? | no. indiv must cancel with one firm and apply for the new firm. |
| What form is used for an associated person who resigns or be terminated? | U-5. this is filed by the mbr with FINRA CRD Cental Registration Depoisitory within 30 days. Mbr must also provide a copy to employee w/in 30 days. If fail to do so in this time, mbr subject to late fee. |
| If an associate leaves one employer for another what is the responsibility of the new employer? | file U-4 and obtain a U-5 filed by former member. May get U-5 from new employee or from CRD |
| t or f the old employer is not requried to supply the new employer a copy of the u-5. | true |
| If a registered person leaves a busines, does FINRA retain jurisdiction over that person? | yes for 2 years |
| parking the license | a rep may leave the business for a period of time and then wish to return to the firm w/out retaking the exam. The is prohibited by FINRA |
| An amendment to the U-4 that involves possible statutory disqualification requires submission of an amended form | within 10 bd |
| if a mbr learns that info is filed on U-5 is inaccurate or incomplete, it must file an amended U-5 | within 30 days |
| which is not SRO? FINRA, REGIS STOCK EXCHANGE, SECURITIES INDUSTRY AND FINAN MRKT ASSOC, OR REGISTERED CLR AGENCY? | securities industry and financial mrkts association (SIFMA) - SRO's consist of FINRA, the municipal securities rulemaking board, the registered stock and option exchanges, and registered clearing agencies. |
| a sotck exchange mbr firm that wished to join FINRA must submit form BD to which place | FINRA'S district office where the applying firm has its home office |
| the taping rule | if b/d hires an excessive number of reg persons from a disciplined firm (kicked out of FINRA) the frim will be required to tape all telephone conversations with current and potential customers. |
| once a firms becomes aware they fall under the taping rule, how long do they have to comply? | 60 days |
| who are included in the exempt persons associated with a mbr that do not have to register with FINRA? | Exclus. clerical, not actively engaged in investment banking or securities activities, have functions that are solely mbr's need for nominal corp officers or capital particip (silent prtnrs) and have funct that solely trans in muni security or commodities |
| foreign associates | those citizens or res and who conduct all their securities activiiters in areas outside the juridiction of the US and do not engage in any securities activities with or for any citizen, natinal or res of the US must be reg with FINRA but exempt from exam |
| t or f reg reps of FINRA and b/d must also register with the state securities admin for each state where they do business. | true |
| what happens if a person fails a FINRA exam? | they must wait 30 days to take it again. If they fail 3 times in a row they must wait 6 months to retake exam |
| who does the term registered rep include? | assistant officer who does not function as a principal, indiv who supervises, solicits or conducts business inc securities and indiv who trains ppl to supervise, solicit or conduct business in securities. |
| Limited Representative | series 6 allows its holder to sell invest co products and variable contracts. (mfunds, unit invest trusts, face amt certificates inc and and closed end funds on in an IPO) |
| Limited Principal | series 26 allows a principal to supervise the solicitation of investment co products and variable contracts sold by prospectus and to review and approve advertising related to these products. |
| what may a limited principal not supervise? | series 26 may not supervise underwriting, trading or market-making activities, all need a series 24. |
| t or f a FINRA MBR firm must have a compliance officer to deal directly with compliance issues and to serve as a resource for questions | true |
| what is an indiv holding a series 6 license permitted to sell? | colosed-end co at IPO, open end invest co shares, and unit invest trust shares |
| t or f a series 26 principal may participate in the review and parove an advertisment for new corp bond offering | false |
| t or f a series 26 principal may participate in in supervise sales of IPO of corp stock | false |
| t or f a series 26 principal may participate in in review and aproval of advertising of a fixed annuity | false |
| t or f a series 26 principal may participate in revie and approval of advertising of new mutal fund | true |
| what 3 characteristics of investment advisers does the investment act of 1940 include? | they provide invest advice, in business doing so. (public, advertise), they recv' compensation for the advice |
| When are Investment adviser exempt? | have offices in 1 state, and all clients are in that state and do not advise on securities listed on any national exchange, adviser who advise ins co only, adviser who during the past 12 mo have had <15 clients, don't advertise, |
| de minimis exemption | when advisers have dure preceeding 12 mo < 15 clients, and do not advertise to public or to investment co. |
| who are excluded? | banks, bank holding co, publishers of bonafide newspaper, news mag or bus. financial public. (Wall st jrnl), b/d whose invest advise is incidental to the conduct of b/d business and get no compenstion for the advc, gov agencey advc ppl, certn ppl (late) |
| who fall uncer the "certain pppl" that are excluded using the acronym L.A.T.E. | Lawyers, Accountants, Teachers and Engineers that give investment advice that is incidental to their professions, and for which they recv' no special compensation. |
| Who must register as an investment adviser? | any person included under the federal definition of IA must register with SEC under the IA act of 1940 unless they are exempt. |
| Federal covered advisers | SEC registered iA |
| Which advisers must eregister with the SEC? | Persons managing $30 million or more in assets, or mging an investment co registered under the Investment co act of 1940 |
| Which advisers must register with the state? | and adviser managing less that $25 million. **Note** if IA has $25 mill but not yet 30 mill thegt have the option to register with either the stat or the SEC |
| When is okay to call yourself an Investment Adviser? | if the adviser's main business consists of acting as IA and the substantial part of the adviser's business consists of rener investment supervisory services. |
| Paper Act | Securities Act of 1933, generally requires co. that intend to sell securities to the public to register them with the SEC with a regis stmt and provide a prospectus. |
| how long is the cooling off period to give the SEC enough time to clear regis stmts for new regisrations? | 20 days |
| can a co solicit sales during the cooling off period? | no |
| what doe the Investment act primarily deal with? | new capital (new issues, new IPO's) and that full disclosure is required |
| security | almost any instrument traded or sold in the industry, key attribute of a security is the unpredictability of the investment |
| issuer | any person that issues or proposes to issue a security. could be corp, gov or muni entity |
| underwriter | any person that has purchased securities from an issuer with the itnent to resell them - does not incl a brokerage firm that earns a commission on a retail sale to the public |
| prospectus | any notice, circular, advertisment, lttr, or communication in writing, radio, or via tv which offers any security for sale. must provide full and fair disclosure. IT DOES NOT INCL ORAL COMMUNICATIONS. |
| sale | a contract, sale, or disposition of a security for value. |
| offer to sell | refers to any attempt or offer to dispose of a security |
| dealer | any person who is engaged eith full time or part time, directrly or indirectly in the business of offering, buying, selling or otherwise dealing or trading in securities issued by another person |
| insurance company | co whos primary and predominant business activity is the writing of insurance |
| reg D - Private placements | these are securities that are not sold to the public and are exempt from regis. This are normally institutions or high-net worth indiv call acccredited investors. |
| why do private placements have a liquidity risk? | because they have restricted period before these securities may be sold and can only be with 35 mpm-accredited investors. |
| accredited investor | athese categor. bank, b/d, ins co, emp bene plan AOM >$5 mill, direc, exec ofcr, gen prtnr of security issuer, corp, partr, erust not for purp of this invest AOM $5 mill, indiv new worth >$1 mill or inc>$200k pst 2 yrs jt $300k & expec to reach again |
| closed end companies are also know as | publicly traded funds and are bought and sold on exchanges. |
| open end funds are alosknow as | Mutual funds and are sold at POP and redeemed at NAV |
| hwo often does the NAV calculated? | at least daily |
| Mutal fund sales charges have a cap and cannot exceed what? | 8.5% of POP. |
| Class A Shares | sold with front end load, paid by investor at purchase. This clas include 12b-1 fee that cannot exceed .25% of net assets. This class of shares has a lower expense ratio than the other share classes |
| break points | up front sales charges for Class A Shares can be reduced by the volume of the investment (breakpoints). |
| what must be done to be able to charge the max 8.5% of POP fee for Classs A shares | fund must offer breakpoints, according to min sched set by FINRA and the rights of accumulation. |
| What class of shares are most suitable for investors with a large amount to invest and long tiem horizon? | Class A |
| Letter of Intent | may increase bene of breakpts in that it allows investor 13 mo. to invest toward a breakpoint. Also called statements of intention. Some may be backdated 3 mo to include deposits already made |
| where do you find the letter of intent for a mfund? | in the mfunds statement of additional info (SAI) |
| rights of accumulation | a scale of reducing sales charges in which the sales charge is based on the aggregate quanity of securities previously purchased or acquired and then owned plus the securities being purchased. |
| combination privilege | allows the investor to add purchases of Class A shares of other funds in the same family to build toward a breakpoint. |
| class B Shares | sold at NAV and have the sales charge lefied when the shares are redeemed. The back in load is usually a contingent deferred sales charge (CDSC) and is reduced every year. Usuall reaching 0 within 6-8 years. May have 12b-1 fees up to .75% of Net assets |
| t or f Class B shares after 6 - 8 years ususally convert to Class A shares with low expense ration and low or zero 12b-1 fees. | true |
| what shares are most suitable for investors with a small amount to invest and a long time horizon | Class B |
| Class C shares | Shares sold at NAV and have a level load - 12b-1 fee of up to .75% for life of account. May also be back end load but is levied for only the first year. |
| What class shares are suitable for investors with a short time horizon | Class C |
| fund complex | exhange privileges that allow the investor to convert an investment in one fund into and = investment in another fund in the same family. With no additional sales charge |
| how long do you have to make an exchange after the redemption of funds if the funds are in the same family | 30 days |
| do sales personnel or dealers receive any compensatin if exchanging funds within the family of funds | no - none at all. |
| t or f any exchage ogf funds is considered a sale, followed by a purchase for tax purposes. Any gain or loss is fully reportabe in the yr of exchange. | true |
| voluntary accumulation plan | allows a customer to deposit reg periodic investments on a voluntary basis. gives flexibility while helping investor to have regular invest habits. may require a min dollar amount for intitial and additonal purchases. |
| regular accounts | lump sum accounts, invests sum of money all at once |
| where would customer find the min required initial or subsequent investment amount. | prospectus |
| periodic pmt plans | also known as contractual plans b/c they were sold from unit invest trusts know as contract plans. These plans are no longer sold but many existing plans are still inf effect |
| how did the contract plan get sold? | investor would get 2 prospectus, 1 for contrac plan and 1 for mfund. then the inves would enter a non contractual agree make periodic pmt for specified # of yrs 10-20. |
| what were the advantages of a contractual plan | 1. investor could avoid the mfund inital invest requirement normally several thousand, since co would accept as little as $10 to start the plan, 2. they could buy completion insur - if invest. died b4 plan was complete, ins would provide rest plan pmts |
| were Contractual Plan companies members of FINRA? Why does this matter? | no, so they had to pay POP for their shares and they could charge a max of 9% max sales charge calculated over life of contract. |
| 27(h) companies | also called spread load companies b/c the way they collect sales charge. may get up to 20% on any pmt as sales charge but avg over first 48 mo may not exceed 16%. Then must be decreased to not exceed 9% over life of investmnt |
| under the contractual plan how long do investors have to consider withdrawing from the plan | 45 day free look period to w/d |
| How long does the plan company have to post a letter to the investor for the 45 day free lookm letter? | 60 days, this gives the investor 45 days fro the posting of the letter to w/d from the plan. all sales charges so far collected are reimbursed plus next computed NAV of mfunds shares so far purchased |
| how much would the investor get back if they wanted a refund from their contractual plan after 45 days but b4 18 mos under (1940 company) | Next calculated NAV and all sales charges over 15% of amt so far invested. after 18 mo just NAV would be refunded |
| how much money would spread load 27(h)(act of 1970) companies refund after the 45 day free look period to the customer? | only NAV |
| dollar cost averaging | formula method of purchasing mutual fund sharesin which a person invests reg amts over time. It allows the indiv to buy more shares when prices are lwo and fewer when high. |
| t or f dollar cost avg yields a lower cost per share than athe avg price per share | true |
| how do you find avg price per share? avg cost per share? | price: add prices together and divide by # times purchased ex: $10+$5+$20=$35/3 = $11.67 cost: total dollars spent on shares/# of shares. ex $300/35 = $8.57 |
| what are the different types of Mutual fund w/d plans? | lump sum, fixed dollar, fixed percentage or fixed time (normally a free service) |
| fixed dollar w/d of mfund | customer gets periodic w/d fo fixed $ amount. fund liquidates enough shares to send sum each period. amount liquidated can be more or less than the acct earnings during the period |
| fixed percentage w/d of mfund | also called fixed share, either a fixed # of shares or fixed % of the orig number of shares is liquidated ea period. |
| fixed time w/d of mfund | customers liquidate their holding over a fixed period of time |
| how is a customers fixed time w/d calcualted and sent if the customer wants to get procedds mo for 10 yrs of a mfund? | first check would be 1/120 of current acct value, 2n 1/119, 3rd 1/118, etc. |
| do mfunds allow you to keep investing once w/d start? | most require that deposits stop once w/d start |
| w/d plan disclosures | w/d plans not guaranteed. fixed $ only $ amt ea mo is fixed, all else is variable. for fixed time, only time is fixed all else is variable like amt of $ |
| what must registered rep do since w/d plans on mfunds are not guaranteed? | never promise rate of rtn, tell investor they can exhaust the acct by over w/ding, tell inves during down mkt even sm w/d can exhaust acct, & never use charts unless SEC clears their use. |
| Rule 3a-4 (Invest Advisory Programs) | |
| wrap fees | investors pay a % of their assets as a mgmnt fee instead of paying a commission for each trnasaction. 1-3% yearly of assets for equity investments and between 1.25 and 1.75% for fixed income investments. charged against acct annually or quarterly. |
| when is a co not deemed an investment co? | ea client is mg'd on indiv finan situation, object are rec'd at opening of acct and are asked annually if things changed, must tell client in writing qtrly notify co if there are changes, ea client can impose restricting on mgmt, client must get qtr stm |
| fee based accounts | b4 opening fee based account, mbr must establish that such an acct is appropriate for the customer judging from their knowledge of his financial status, investment objectives, trading hx, size of portf, nature of equity held, & acct diveris |
| t ro f fees for a fee-based program may cost more than if the custoemr pays for the items separately. | true and this must to disclosed to the client. |
| annuity | a contract btwn an indiv and ins co usually bought for retirment. annuitants contribute $ to plan in lump sum or periodic pmts (premiums). Some time in future investor (annuitant) may rec'v pmts. taxes are deferred. |
| what are teh 3 types of annuity classifications? | fixed, variable and combination |
| fixed annuity | guarantees rate of return. payout is determined by the acct's value and annuitant's life expectancy, as based on mortality tables. No investment risk. |
| what kind of product is a fixed annuity? | this is a insurance product only not a securities product. Need only a life ins license to sell fixed annuities. |
| Is there any risk at all to a fixed annuity? | not in interest and principal but there is a risk of loss of purchasing power because of inflation. Prem only go to ins co. general acct. |
| Variable annuities | contact btwn investor and isn co. in this the insurer agrees to make periodic pmts to the investor starting either immed or at some future date. Single or series of pmts can be used. |
| does a variable annuity guarantee ROR? | no, this contains equity and does not have a guarantee like that of fixed annuity. |
| nonqualified annuity | premiums paid by annuitants are made with after tax dollares. On withdrawal, only earnings generated will be taxed. |
| where are premiums for variable annuities invested? | in ins co separate account. |
| combination annuities | provides a min guaranteed pmt plus pmts that keep pace with inflation. investor contributes to both a fixed and variable acct. |
| accumulation unit | an accounting measure that represents an investor's share of ownership in the separate account. It's value is determined in the same way as a mfund share. value changes with securites held in sep acct and total # oustanding shares |
| how many prospectus does and person who buys a variable annuite receive? | at least 2 - one for unit trust (separate acct) and one for each mfund purchased by the trust. |
| when does a variable contract get computed as to how many unit shares they will recv'? | after payment is recv'd by the insurance co. Under FINRA rules, pmts must be tansmitted promptly to ins co. |
| what are the 2 main types of accounts used by insurance co.? | general account - used for insurance, and separate account - used for variable annuities or variable life |
| when can the separate account begin operations? | if either the insurance co or the separate acct has a net worth of $1 mill. |
| because the investor bears the risk where must a variable annuity be registered under? | the investment co act of 1940 |
| are sep accts used for annuities closed or open end accts? | they are considered open end accounts if funds in act are used to by securities directly or to buy shares in mfund. |
| are taxes deferred for return on investment in a varialbe annuity? | yes |
| direct investment | contract holer's money is invested in a portfolio of individual securities actively managed by the ins co's sep acct. |
| indirect investment | the separate account holds mutual funds shares pruchased in trust for the contract holder's benefit and does not manage the securities. |
| do variable annuity owners have the right to vote and is so on what? | yes, they vote on changes in investment policy and for the investment adviser. They also elect a boad of mgrs to oversee the portfolio |
| what is the difference between mfund and variable annuity? | almost the same, mfund buys shares, VA buys units, mfund has board of directors and VA Brd of mgrs, mfund has no guarantees and VA has some guarantees |
| deferred annuity | may be purchased with lump sum, with pmt benefits deferred until the annuitant elect to receive them. Or a periodic pmt allows investos to make pmts over time. Can be done mo, qtrly, or annually. |
| immediate annuity | investor may purchase using lump sum. Ins co begins to pay our the benefits immediately -- usually withing 60 days. |
| how long does an investor have to terminate a VA and still receive repayment of commissions? | 7 days |
| accumulation stage of an annuity | the pay in stage. The pay in stage is flexible. If misses a pmt there is not danger of forteiting the preceding contributions. Client can terminate any time during this state |
| how does an annuitant begin the annuitization stage? | this is the pay-out stage of the annuity. To begin they must select a pay out option |
| Can pay out options for an annuity be changed in the future? | no, once it is selected it must remain. |
| mortality guaranteee | ins co guarantee pmts for as long as annuitant lives. If they live longer than expected the ins co absorbs extra cost. |
| operating expense guarantee | is co project is own expenses for administering an annuity plan. If cost increase, ins co sets a celing for expenses charged to separate account. If costs are greater, ins co pays the difference. |
| annuity units | when contract is annuitized, accumulation units convert to annuity units. the # of annuity units is calculated when owner annuitizes the acct. the nuber does not change but with a variable annutiy, the value of units fluctuates |
| Assumed Interest Rate | a basis for projecting earnings for a varable annuity. Usually estimated conservatively, provides an earnings target for the separate accoutn. Used to project the mo. pmts for the annuitant. |
| how does AIR affect performance of monthly annuitant's check? | -If sep acct performance is = to AIR, check is same, - If performance > than AIR, next check will be higher -If performance is < AIR, mo check will be lower |
| what 3 things determine varialbe annuity pmts | mortality tables, AIR, and the value of the annuitants portfolio. |
| where must a variable annuity salesperson register | 1)state insurance commision and 2) FINRA |
| what does a variable annuity contract guarantee? | fixed mortality expense, and fixed admin expense |
| hwo are sales charges for a variable annuity contract determined? | required to be reasonble by SEC standards |
| t or f contributions for non employee sponsored retirement plans are made with after tax dollars and therefore are not taxable upon distribution? | true |
| how is the amount the ivestor earned in dividends and captial gains in an annuity taxed when withdrawn? | it is deferred util w/d, then the amount exceeding the investor's cost basis is taxed as ordinary income. |
| how are lump sum withdrawals taxed for an annuity | Taxed using LIFO method, meaning the earnings are considered taken before cost basis. |
| If a annuity contract has $100k, $40k in contribution and $60k in earnings and a lump sum is taken out. How will it be taxed? | 60k would be taxed at reg income and $40k would be tax free. (LIFO) |
| what happens if an annuitant dies during the accumulation stage of his annuity? | beneficiary will recive the total value of the account or the original invest amount whichever is greater. any amount over investment amt will be taxable to bene as ordinary income. |
| t of f both VA and Mfunds are regulated by Investmenty Co Act of 1940 | true |
| How can you tell if a plan is qualified? | if a plan meets requirements of ERISA and IRS it is said to be qualified. If not, it is not qualified |
| t or f qualified plans are 100% taxable? | true, because they are qualifed they are made with before tax dollars and have not been previously taxed. |
| t or f qualified plans the plan is a trust and non qualified the plan is not a trust | true |
| Employee Retirement Income Security Act (ERISA)of 1974 | passed to protect the retirment assets of persons in the private (nongovernment) sector of the economy. Often called Pension Reform Act. |
| how long can a company prolong an employee from joining a retiremnent plan? | no more than 3 yrs |
| are nonqualified retirment plans required to follow nondiscrimation rules | no. Employers may make nonqualified benefit available to some classes of employees and exlclude others. much different than a qualified plan. |
| do nonqualified plans permit growth and earnings to grow tax deferred | yes |
| what are the two types of nonqualifed plans? | payroll deductions and deferred compensation plan |
| deferred compensation plan | a contractual agreement between a firm and employees in which the employee agrees to defer receipt of current compensaiton in favor of a payout at retirement (or disability or death) |
| can members of a board of directos (who serve in director capacity only) participate in a deferred compensation plan? | no they are not considered employees and may not participate in teh plan. |
| qualified retirement plan | refers to those made by employers for the benefit of their employees. all contributions are made with pre-tax $$ and taxes are deferred until w/d. |
| IRA | Indiv Retirement account, anyone with an earned income may open and contribute to a traditonal IRA. Since they can have pre-tax $$ the IRS treats them similar to qualified plans |
| when are contributions to IRA tax deductible? | if investor is not covered by qual plan at work or if his income is below a threshold level. If he is covered by qual plan, then his contributions are partially or totally after tax |
| when can you contribute to traditional IRA | taxpayer < 70 1/2 reporting earned income can contribute. Passive income from investments is not earned income. |
| When is the cut off for the tax year contributions? | Contributions to an IRA may be made up to April 15 of the year following the tax year. |
| Nonparticipating Employee | A taxpayer who does not actively participate in an employer sponsored pension or profit sharing plan. they may continue to make tax deductible contributions to a self funded personal IRA. |
| Participating employees | If a taxpayer participates in employer pension or profit sharing plan, incl a Keogh or SEP his total earnings for the year determine the extenet to which self-funded IRA contributions are tax deductible. |
| IRA Custodian | taxpayers may apporint custodians of their choice, selecting from b/d, banks, saving institutions, ins carriers, credit unions, and mfund distributors. |
| what is the max contrib to an IRA per year? | 100% of earned income or $5000 whichever is less. If age 50 or older, he may add a catch up contrib of $1000 |
| t or f a spousal IRA is only available if a joint income tax return is filed. | true |
| what happens if you make excess contributions to an IRA? | they are subject to 6% penalty if not withdrawn by 04/15 of the following year. |
| what are the ineligble investments for an IRA to invest in? | collectibles, antiques, gems, rare coins, works of art, stamps, life ins products. Also tax free muni bonds would gen be considered inappropriate for IRA since they are already tax free. |
| What should an IRA take into account to be suitable for the investor? | investor's age, risk-tolerance |
| are there any ineliglgle Investment practices with IRA's | yes, no short sales, speculative option strategies, nor margin accounts. However, covered call writing is allowed. |
| what are the 2 ways to move money from one IRA to another? | rollovers and transfers |
| rollover | individual takes possession of the funds in his IRA and deposits them with another IRA custodian. May be done only once per year and must be complet withing 60 days of initial w/d or is subject to income tax and if indiv is , 59 1/2 10% penalty tax |
| transfer | indiv directs the custodian of his IRA to wire funds to another IRA. No limit to number of transfers in one year. No tax penalty for transaction. |
| When does the employer retain 20% of the distribution of an investors IRA | when investor transfers from One IRA to another, the employer must retain 20% of the distribution as a withholding tax. The account holder may apply to IRS for a refund or apply for a tax credit. |
| when is an investor required to take funds from a traditional IRA? | Must begin by April 1 of the year after the year when teh account owner reaches 70 1/2. |
| what is the penalty if an indiv fails to begin his w/d by age 70 1/2 of a traditional IRA? | 50% penalty tax will be imposed on the amount that should have been w/d'n. |
| what is the penalty if w/d are take b4 the investor is 59 1/2? | 10% |
| if investor is not 59 1/2 what valid reasons can tehy w/d from their account without a penalty? | death or permanet disability of indiv, medical expenses exceeding 7.5% of indiv AGI, pmt of health ins prem by unemploy who recv unemply comp for 12 consec wks, firt home, college |
| when can money be w/d'n from a Roth IRA? | when the investor is 59 1/2 and after money has remained in the account for at least 5 taxable years. |
| ESA's | Educational Savings accounts or properly know as Coverdell Educ Savings Accts. |
| How much can you put in an ESA per year? | up to $2000 after tax contributions per child until 18th birthday. |
| how long does a student have to use his education account | thill the age of 30, the funds must be distributed to the student, or rolled to ESA for another family member. |
| who can make deposits for ESA's in the Child's behalf? | anyone as long as they are within the earnigns limits set by the IRS. |
| can contributions be made to both a savings plan and an IRA? | yes |
| 529 plans what are the 2 types? | prepaid tuition and college savings plans |
| prepaid tuitions plans | allow donors to lock in current tuition rates by paying now fgor future educaiton costs. |
| college savings plan | 529 plan that is the more popular college savings plan |
| what is the allowable contribution for a 529 college plan? | vairies from state to state but may be $250k or more |
| t or f $ in 529 pln is separate from his estate? | true - if donor dies, the plan may continue to fund bene's education without delays for probate. |
| Are 529 plans tax free? | fed tax yes, but may incur state stax particularly if the plan is organized under the jurisdiction of antoerh state than the one of residence of the beneficiary |
| what happens if 529 plan does not get used by beneficiary? | it simply remains the property of the donor, if donor changes beneficiaries, the next bene must be a close family member of the first. |
| what licenses must be had in order to issue a 529 educational plan? | at least one principla licensed as an MSRB series 51 Municipal Fund Securities Limited Principal or Series 53 Muni securites principal |
| SEP | Simplified Employee Pension Plans - qualified indiv retiremtn plans that offer self-employed persons and small business easy to admin retirement plans. They allow employer to contribute to an IRA that employee sets up. |
| who is eligible to participate in SEP | 21 yrs old, has worked for employer the last 3 or 5 yrs, recv'd min amt of compensation from the employer, all emplyees must particpate |
| when are employees vested in a SEP Plan | immediately |
| Are contrib to a SEP tax deductible? | yes, to the employer making depos, the employee is taxed when w/d'n. |
| SIMPLE | IRA - Savings Incentive Match Plan for Employees. tax-deferred retiremnt plan provided by sole proprietors or small businesses (no > than 100 employees who earned who earned $5000 or more) who do not have any other plan. |
| how are contributions made to a SIMPLE? | by both the employer and employee on pretax basis. contrib and invstment earnings grow tax deferred until w/d'm. |
| Can employers match an employee's SIMPLE contributuion? | yes, 100% for all employees up to 3% of total compensation. |
| can any company open a SIMPLE plan? | no, only companies that have no more than 100 employess meeting specified earnings limits and no other qualified plan in place. |
| what are 403(b) and 501(c)3 plans and what are they used for? | 403(b) is a tax sheltered annuity for public shcool officials and 501(c)3 is a tax sheltered annuity for not-for profit orgs |
| TSA | tax sheltered annuity - are for long term savings plans only and are subject to penalties if participant w/d savings b4 retirement. They have both fixed and varialbe. |
| who offers TSA's | ins co, banks, brokers, savings and loans, and credit unions |
| what kind of tax advantages do TSA's offer? | contrib are excluded from participants income, earnings in TSA are tax free until distribution |
| who is eligible for a TSA? | employer must first qualify as a public educator, or tax exempt org, or non-profit org |
| what types of companies would you see in a 501(c)3 tax exempt plan | private colleges, trade schools, parochial schools, Zoos & museums, research and sciene foundations, religios orgs, charities, private hospitals and medical schools |
| are independent contractors working for a tax-exempt org elig for a TSA? | no |
| What is the requirement for the employee to be part of a TSA plan? | 21 y/o, completed 1 yr of service |
| what are the 2 requirements a TSA must meet? | 1. plan must be in writing through a plan instrument, trust agreement, or both. 2. employer must remit plan contributions to an annuity contract, mutual fund or another approved investment |
| do employees make contrib to a employee elective deferral TSA plan. | no, the employer and employee enter an agreement specifying the amt or % of pay to be decuted, timing , and whether deductions will be salary reduction or an agree. to forego pay increase. |
| what are the contribution limits of a TSA? | subject to indexed mas limits. |
| KEOGH (HR-10) plands | self employeed or small business or professional practice and is reporting income and expenses on Schedul C of form 1040. |
| who is eligible for a KEOGH | if owner of sole propietor have employees, they must be covered under the employer's keogh plan if partnership has a keogh plan. |
| can an incorporated business have a KEOGH Plan? | no |
| what are 3 eligibility requirements for a Keogh | Income must be earned, Business must show profit, Plan must be nondescrimatory |
| how are contributions to a KEOGH made? | tax-decuctible contrib subject to indexed annual limits until the age of 70 1/2 |
| who can be in a Keogh? | full time, at least 1000 hours of compensations for work, 1 or more years of continuous work, 21 y/o |
| how are corp pension and profit sharing plans to be established? | under a trust agreement, with an appointed trustee |
| defined contribution plans | those plas that shelter contributions of otherwise taxbel income without promise of specific future benefits |
| defined benefit plans | those that promose a specific retirement benefit but do not specify the level of current contributuins |
| t or f if a plan is considered a pension, then the company must make contributions regardless of company earnings. | true |
| how is the amount determined on a defined benefit plan? | either as a lump sum such as $1000 or as a percentage of the top 5 years of the worker's income. |
| who assumes the risk on a defined benefit plan? | because the amount or percentage is promised for a period of time under contract the employer assumes risk |
| who are defined benefit plan most adventageous for? | older employees |
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